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Speech of Prof. Prem Kumar Dhumal, Chief Minister, Himachal Pradesh
49th N.D.C. Meeting
, 1st September 2001, Vigyan Bhavan, New Delhi.


Respected Prime Minister, Hon'ble Deputy Chairman, Planning Commission and Esteemed Colleagues,

1. I am privileged to participate in this historic meeting of the National Development Council, which has as its main agenda consideration of the Approach Paper to the Tenth Five -Year Plan. The agenda includes other issues relating to the criterion for allocation of funds for poverty alleviation programmes, transfer of centrally sponsored schemes, placing Uttaranchal on the list of Special Category States and mid term appraisal of the Ninth Plan. However, it is the analysis of the serious problems on the resource and governance front and the radical measures outlined to achieve the objectives of poverty reduction, improved living standards and sustainable, development, contained in the Approach Paper, which command primary attention. Also important, perhaps uniquely so, is the fact that this meeting will discuss what has been called a Reform Plan rather than a resource Plan and it is for this reason that I have referred to this meeting as historic.

2. I would like to briefly highlight many appreciable features of this Approach Paper before discussing some of the issues that in our perception require more detailed attention. The growth target of 8% per annum deserves to be commended as a high but achievable goal to bring us closer to the Hon'ble Prime Minister's vision of doubling per capita incomes in 10 years and reducing poverty by 15 percentage points in the same period. Establishing cogent monitorable physical targets, which capture the essence of better living standards and the creation of a healthier, more aware and productive population as well as a cleaner environment, is a welcome step. The analysis of resource constraints rightly seeks commitment from both the Centre and the States to an agenda of fiscal correction and suitable policies to attract private sector investment in the infrastructure sector. The recognition of the fact that a decade of reform has left agriculture more or less untouched is appropriate, as is the need to focus on high quality employment opportunities. We also fully endorse the perspective on governance, which seeks a redefinition of the role of government, proactive support to encourage a competitive private sector able to hold its own in this era of globalization, increased involvement of focal bodies in the delivery of public services and the required statutory, procedural and administrative changes which would make all this possible. These features truly set the tone for a wholesome and positive change of mindset at all levels and will, I am sure, win approbation from all quarters.

3. I would like to devote some attention now to the investment and resource assumptions contained in this Approach Paper. There is a requirement for a considerable increase in the investment rate to over 32% of GDP compared to the 23% to 24% recorded in the last two years. Such an increase assumes a sharp mark up in the savings rate in the household, private corporate, external and public sectors and within the public sector, requires a special effort at the government level. This last is critical, not only in terms of its own contribution but also because positive government savings will become possible only in the kind of fiscal and governance scenario which enables the various non-government sectors to meet the expectations placed on them. The Approach Paper exhorts  governments at the Centre and State level to set realisable targets of revenue raising, expenditure compression and control on debt. We fully endorse the view that in all these measures, it is the Centre, which will have to take the lead. It is the Centre's slowdown on revenue receipts, its decisions to allow huge hikes in salaries and pensions and finance an increase in the size of government through debt that set a trend which has been hard for States to resist. Fiscal correction now requires hard decisions relating to areas like reduction in number of employees, new formulations on pensions, increased user charges, phasing out of subsidies and accelerating the pace of disinvestment. The Centre must build the consensus required on these issues and initiate action so that we can carry conviction in proposing similar changes at the State level.

4. I would like to add at this juncture that the larger burden of the resource requirement to fulfill the Tenth Plan targets will have to be shouldered by the Centre and even more so in the case of Special Category States, like Himachal Pradesh. The revenue expenditure in many of these States has risen sharply in large part because of the expansion of institutional coverage in the social sectors which has been encouraged and approved at the central level over successive plan periods. States like Himachal Pradesh have made laudable achievements as a result. However, the marked slowdown in central transfers to support these revenue commitments has suddenly left us high and dry. There is now a danger of decline in the levels of various social and human development indicators which have seen Himachal Pradesh rank among the best in the country. It is imperative that Himachal Pradesh receives a one-time clearance to reduce debt burdens and sustained support in the future, if it is to achieve the targets envisaged in the Tenth Plan. There is a tendency to focus the attention of our various special programmes on under achieving States assuming that the relative well being of States like Himachal Pradesh has already been ensured. But it must be recognised that it is only central support, which can enable a State like Himachal Pradesh to sustain its achievements in the foreseeable future.

5. The requirement of central financial support can be reduced if central support is forthcoming in another direction. Himachal Pradesh has for long been agitating that it must be given its legitimate share of 7.19% in the BBMB system in accordance with the Punjab Reorganization Act, 1966. in addition to this, we have a right to 12% free power from these hydel installations. Settlement of arrears of the past on this account can go a long way in mitigating our one time requirement to ease our debt burden. The regular receipt of our full 7.19% share and our 12% free power entitlement can contribute significantly to providing stability to our finances.

6. We understand that a contention that central support is necessary to sustain Himachal Pradesh cannot carry conviction forever. We have identified our areas of strength and outlined strategies to exploit them. Our core strategy for the Tenth Plan would centre around actualizing an additional 6100 MW of hydroelectric potential which is already at different stages of implementation, diversifying the farm sector to take specific advantage of our special agro-climatic conditions, providing universal rural connectivity to give a fillip to overall economic activity and attracting large scale private investment in the hydro-power, information technology and biotechnology sectors and both welcoming and facilitating the establishment of institutions of excellence in both old as well as new economy sectors. Greater emphasis is also envisaged on improving the quality of human stock by intensified and relevant technical education at different levels. Our State is endowed with enormous tourism potential and it is proposed to put in place a series of integrated projects with private sector participation.

7. The Approach Paper lists a minimum agenda on which the approval of the NDC has been sought. I have already had occasion to address some of the issues related to fiscal correction and respective responsibilities of the Centre and the States. I would like to emphasise at this stage that Himachal Pradesh recognises the necessity to undertake the required measures to ease fiscal distress. We have publicly outlined the nature of fiscal and governance reforms we feel are essential in our State. We are in the process of finalising our medium term fiscal reform projections for the facility set up on the recommendations of the Eleventh Finance Commission. We would only like to caution that any performance based linkages for resource transfers cannot adopt a uniform yardstick of measurement based on reducing revenue deficits. For us, the hangover of past debt makes such an index unrealistic. Even if we strive our utmost to reduce current liabilities in other spheres, interest payments continue to inflate our revenue deficits. Flexibility to take into account State specific realities and use of a measure like the primary deficit would be appropriate to gauge a State's performance on the fiscal front. I would also like to reiterate, once again, the imperative for the Centre to show the way in the areas of reducing expenditure, privatizing and increasing receipts. This is an era of consensus. Recent initiatives on building a consensus on power sector reform as well as Sales Tax and VAT related issues, need to be followed up in the difficult domain of expenditure compression. In this context, I would like to suggest that Hon'ble Prime Minister may hold a meeting of all political parties to arrive at a consensus on the various steps required to achieve fiscal balance and improved governance. Only such an initiative can bring to a halt, the politics of competitive populism that sees all major parties pursuing reforms agenda in the States in which they are in power and opposing elsewhere. Support or opposition must cease to be based on politics and rise to the level of values necessary for the Country's progress.

8. Reduction of centrally sponsored schemes through transfer to States, convergence and weeding out is an item that also figures separately on the agenda for today's meeting- We whole-heartedly endorse this viewpoint. The very large number of centrally sponsored schemes in existence today create a number of difficulties for States. Their uniform prescriptions can be at variance with specific state needs. In many cases, their matching requirements and recurring revenue fallout impose an unwarranted burden on State finances. There are also instances where the conditions attached to such schemes result in administrative and governance difficulties. An example of varying patterns imposed by centrally sponsored schemes for the same purpose is the different guidelines for watershed development emanating from the agriculture and rural development ministries. Instances of mismatch with State schemes in the same sphere are many more. The trend of passing on central funds directly to societies under certain centrally sponsored schemes also has the unfortunate tendency of bypassing state accountability systems. It is time, we feel, that strict guidelines were framed to regulate the number and nature of centrally sponsored schemes. The NDC should place a limit on the maximum number of centrally sponsored schemes to be permitted and the subjects they can relate to. Future centrally sponsored schemes should be fully funded by the Centre and all assistance must flow through the State Budget. A time limit needs to be set within which existing schemes will be reviewed and made to conform to these guidelines.

9. The idea of expanding project-based support to states can be supported, provided certain conditions are met. In the first place, this should not be at the cost of normal untied central assistance. There is a build up of commitments over the years in the State plan which requires that normal central assistance maintains a certain level of increase from year to year. The recent tendency to freeze central assistance even in nominal terms, to make available project tied assistance, is increasing our fiscal difficulties. Secondly, there is a need to ensure that project tied assistance does not end up penalizing performing States through criterion which either favour under-performance or impose strict conditionality not in tune with State specific situations. This is specially true for hill states with their low population densities, difficult terrain and seemingly better performance in the area of human development. We would suggest that project tied assistance should have a formula based State-wise earmarking and permit considerable flexibility to States in framing specific expenditure proposals within the broad sector, whether it is primary education, health, roads or power.

10. The concept of 'core' plans, to be practical, must not ignore the existing level of commitment in the plan with regard to areas like salaries, matching requirements for centrally sponsored schemes and resource flows tied to specific projects. In this context, the suggestions to focus on completing existing projects rather than taking up new ones and permitting use of plan funds for critical maintenance are both welcome. There is little sense in starting new schemes when a large on going shelf is awaiting completion and even less sense in completing new schemes if older ones are losing utility due to lack of essential maintenance.

11. The Centre has made known its desire to bring about statutory and procedural changes to hasten the creation of an environment, which facilitates business. We support the steps being contemplated to free assets and capital locked up in unproductive assets and sick units, reform labour laws and rationalise the policies affecting the small scale sector. We hope suitable measures on administrative and judicial reforms will also be formulated soon.

12. With regard to other items on today's agenda, I have already touched upon the issue of centrally sponsored schemes. On the subject of criterion for allocation of funds under rural poverty alleviation programmes, while endorsing the report of the sub-committee, I would like to again stress the need to ensure that the criterion for such transfers do not end up offering a perverse incentive to under perform. We welcome the entry of Uttaranchal into the community of Special Category States but would like to request that the quantum of funds set apart for them may be enhanced to 40% of the normal central assistance pool.

13. I am grateful to you, Sir, for giving me an opportunity to address this august gathering. I am sanguine that under your wise and able guidance, the issues raised by us will be addressed in a satisfactory manner. Before I conclude, I would like to rephrase what I started by saying. This is a historic moment for our country and we have the responsibility of making a choice between taking decisive action or letting events decide for us. The high road to a quantum change for the better, in the decade ahead demands hard decisions today. If we cannot find the courage to look ahead and ignore the plaintive voices, which tie us to the past; if we succumb to the desire to please today, then we will end-up choosing the low road by default. This path only meanders further into the quick sand of fiscal and governance difficulties in which we are mired today. At some time, there will have to be helmsmen with the strength and sense of history to strike out on the high road but unless we choose now, it will not have been us.